R. Edwin Brown and Winsome S. Brown - Page 4

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               Master Purchase Agreement and Master Lease Agreement shall             
               remain in full force and effect.                                       
               The Barnesville School agrees to use the proceeds from                 
               the aforesaid Master Lease Agreement to first satisfy the              
               obligations under the Recourse Note and Security Agreement             
               dated December 31, 1985, between R. Edwin Brown, Payor, and            
               Federal Data Corporation, Payee, as provided in the Agency             
               Agreement between said parties.                                        

          On January 2, 1990, petitioner’s outstanding obligation under the           
          FDC note was $1,540,280.                                                    
               On their Federal income tax returns for years 1985-89,                 
          petitioners claimed deductions for depreciation and interest                
          relating to the equipment-leasing transaction.  Three separate              
          statutory notices of deficiency were issued, in which respondent            
          disallowed petitioners’ claimed deductions pursuant to section              
          465.  Petitioners petitioned the Tax Court in each instance.                
          Losses in the amount of $549,122 were disallowed for those years            
          and were treated as a carryforward of suspended losses.  On July            
          21, 1993, respondent sent petitioners a statutory notice of                 
          deficiency for the 1990 tax year, determining a gain on the                 
          disposition of the computer equipment to the School and allowing            
          the gain to be reduced by suspended losses for years 1985-89.               
          However, on February 10, 1994, in response to petitioners’                  
          continued litigation in the Tax Court with respect to the 1988              
          and 1989 losses, respondent sent petitioners a second statutory             
          notice of deficiency for the 1990 tax year allowing the gain to             
          be reduced by suspended losses for years 1985-87 only.                      





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